Law

The FDIC, taking a different approach from the Federal Reserve, weighs in on how regulations of deposits apply to stored value cards

Article Abstract:

The Federal Deposit Insurance Corp in General Counsel's Opinion No. 8 issued on July 16, 1996, provided substantial guidance on whether funds received through stored value cards by banks qualify as deposits and whether they are reservable. The general counsel dealt with how the laws and regulations on deposits affect funds received by banks in exchange for smart cards. The agency stated that the issuing bank could set up whatever structure it felt appropriate to create, or avoid creating, an insured deposit relationship. There are different stored value systems in existence.

FDIC forced to focus on capital levels

Article Abstract:

The Federal Deposit Insurance Corp (FDIC) in late May 1992 adopted a rule giving the requirements for a 'well-capitalized' bank. It decided that a well-capitalized bank fulfills the 5% leverage and 10% risk-based capital level standard and has not been advised that it is in a 'troubled condition.' There will ultimately be five capital levels and those banks not qualifying as adequately capitalized will be subject to greater supervisory scrutiny. Of the 416 banks with assets totaling more than $1 billion, 153 banks qualify as well-capitalized.

Depositor preference may harm banks

Article Abstract:

The distribution of proceeds from bank and thrift receiverships will soon be done on a depositor preference rather than pro rata basis. If 100% of a banks liabilities were to depositors this would be a good idea, but because banks have other creditors deposit preference is not the best option. Non-deposit creditors would suffer disproportionate losses if a bank failed under this scheme, and it is unlikely that depositors would be any better protected with the change.